Daniel Knowles writes for the Economist about politics and economics and is @dlknowles on Twitter.

If the FT has got its numbers right, George Osborne's political strategy lies in ruins

You'd have never thought it possible after Tim Farron's electric performance ("Tim Who?", I hear you ask), but it seems the Lib Dems have been upstaged. The biggest political story this morning isn't from Birmingham. Rather, it's the calculation by the FT that the structural deficit is £12bn bigger than we thought. The newspaper has run the latest economic figures through the Office of Budget Responsibility's model and they've found that the economy cannot grow as much as planned. If they're right, by the next election, scheduled for 2015, we'll still have an enormous structural deficit, even if the Government succeeds in cutting as much as they plan to.

This is enormously important. George Osborne has gambled his entire Chancellorship on cutting the structural deficit into surplus by 2015, with room enough to offer tax cuts. That plan now looks very likely to fail.

It's worth noting some definitions here: the structural deficit is the amount that the Government would be borrowing even if the economy were in rude health. It is generally three or four per cent smaller than the deficit, because most economists think that there is some "spare capacity" in the economy – that is, there are unemployed people ready to work and unused capital ready to be started up again, meaning that the economy can grow faster than usual. If growth slows down, the structural deficit increases even if the actual gap between spending and taxation is exactly the same.

And, like it or not, global growth is sinking faster than the Titanic. The idea that Britain's sluggish performance can be written off due to "one-off" events, like the snow, or the Japanese earthquake, is farcical. Now, the only plausible explanation is that the "rebalancing" of the economy has been stopped in its tracks by the fall in international demand. Despite a 30 per cent devaluation in the pound, British firms have not proven able to increase exports enough to make up for declining domestic consumption and government spending. Without that demand from overseas, firms will continue to hoard cash instead of investing and taking on workers. Without that investment, growth will be sluggish indefinitely.

Without growth, however, there is no way that George Osborne will be able to make any tax cuts in the run-up to the 2015 election. Indeed, it is more likely that he will only be able to promise more spending cuts. The Chancellor would be forced to admit to voters that his plan has failed, and a second Tory administration would have to make even deeper cuts to spending or else endure the wrath of the bond markets. Ed Balls, meanwhile, would be vindicated – however inadequate his solution, exactly what he said would happen would have happened. There is only one way George Osborne can avoid this fate: deeper cuts or bigger tax rises now. Were I the Chancellor this morning, I think I would find a convenient "concession" to the Lib Dems on wealth taxes a slightly more attractive prospect.

Update: Andrew Lilico reminds me of the actual Treasury targets here. As he points out, if things don't get any worse, the Government should squeak through and hit its target, although without much scope for tax cuts. That wouldn't be ideal for George Osborne, but perhaps I was too hasty to say it would leave his plans "in ruins". That said, the OBR has been rosier than other forecasters so far and I still don't see where the growth it predicts is meant to come from.